Factor Rate

A factor rate is a financing pricing model commonly used in merchant cash advances (MCAs) and short-term business funding arrangements. Unlike traditional loans that express cost via an annual interest rate, a factor rate is a fixed decimal multiplier, typically ranging from 1.1 to 1.5, applied to the original amount borrowed.

For example, if a business secures an advance of AED 100,000 at a factor rate of 1.3, it would owe AED 130,000 in total repayment. Factor rates represent the total cost of borrowing upfront and are not amortized over time. Repayments are often collected daily or weekly through a percentage of credit card sales or fixed bank withdrawals.

While factor rates simplify the borrowing process for small businesses or startups with limited credit history, they tend to be significantly more expensive than conventional financing, particularly when expressed as an equivalent annual percentage rate (APR).